Commodities and the trading systems on which commodities are traded rely on the underlying fungibility of the commodity—a commodity is more or less fungible depending on the extent to which individual units of the commodity are capable of substitution with one another. Examples of highly fungible commodities are crude oil, precious metals, and currencies. Fungibility has little to do with liquidity—a commodity is liquid and tradeable if it is easily exchangeable for money or another commodity. The measure of the fungibility of a commodity, on the other hand, is determined by the ease with which one unit of the commodity can be exchanged for another substantially equivalent unit of the same commodity at the same time and place.
Precious stones are generally prized for their individual uniqueness, which, by definition, tends to detract from the commodity value thereof.
Individual diamonds, for instance, are unique and diamond prices vary widely notwithstanding attempts by the diamond industry to develop a standardised quality assessment that depends on the caratage, colour, clarity and cut (the proverbial 4-C's of the diamond industry) or such tools as the Rapaport Diamond Report, which is published every week as a price reference.
As a rule therefore, diamonds are not readily interchangeable and are therefore not considered to be highly fungible. Some firms offer “investment-grade” diamonds for sale to the public, often coupled with buyback guarantees in terms of which they undertake to buy the diamond from the purchaser at or near the purchase price within a specified period. This is a far cry however, from the manner in which precious metals are traded as commodities.
This invention proposes means to combine individually non-uniform, non-standard, relatively non-fungible valuable items, such as diamonds, into a largely standardised, fungible tradeable commodity as well as a trading system for a plurality of such commodities, a method of trading using such a system and security systems related to the above.